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  • Profile photo of TerrywTerryw
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    @terryw
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    Just updated my signature, thanks Benny.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    Are Equity Release and Refinance the same thing?

    nope

    Refinance = paying one loan out with another

    Equity release = borrowing against an existing property

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    To get a loan you would need to qualify in terms of serviceability and would generally need to keep lvr to 80% so it will depend on the income of the borrowers plus the LVR.

    Some lenders may also not like 2 properties on one title, but many do.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    What I have seen happen with CBA is that someone might put in some money into the loan today and then think they can redraw it immediately or the next day, but they have to wait for the next monthly payment to come out first. I don’t have any CBA loans atm, so have not experienced this, others have not had any issues.

    So after you split the loan I would ask them if I paid say $200,000 into the loan today, could I redraw $200,000 tomorrow?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    @terryw
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    $5k pw is about $250k pa after tax. or about $400k before that

    To get to this level you would need about $10mil in unencumbered assets yielding 4% after costs. That might mean 25 $500k properties all fully paid off.

    That would be very difficult to do.

    To make it easier

    a) structure it to be more tax effective – so you might only need $300k pa before tax.

    That would still mean $7.5mil in unencumbered assets

    b) try to get a higher return. if you could get  a 5% return that would mean $6mil in unencumbered assets.

     

    But you already have $5000pw so aren’t you already there?

     

     

     

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    I would split it first then pay $799,900 into the loan and redraw. Otherwise it might automatically close.

    You would have 2 loan splits.

     

    Also watch out with CBA as there are a few quirks. Confirm with them that you have redraw and can immediately redraw the full amount.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    You just ask the lender. Generally no new application needed

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    risky I think

     

    When you sell you eat up equity with the agent fees and then when you buy again you have stamp duty, conveyancing, etc So you might lose about 8% of the value.

     

    You also have to consider the loan. Could you qualify for another loan again?

    Think about the effect on the pension too – could you be over the assets test if you downsize?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    Hi Ben

    You could leave it in other investments but you would soon need to liquidate those so you could have the cash ready for settlement. Lenders will want to know where the funds to complete are coming from.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    I am a tax lawyer with a credit licence. with lots of experience in this area. You will need to apportion the interest if you do not split, furthermore, you will be paying back deductible debt with every deposit into the loan.

    Splitting a loan means making one loan into 2 (or more).

    • This reply was modified 5 months, 2 weeks ago by Profile photo of Benny Benny. Reason: Editing as per Terry's correction - for clarity

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    If iti s a $1mil loan then the interest will not be deducitble in full. 80% would potentially be the max

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    I did something similar once. I had the deposit invested in shares and the signed a contract, coming up to settlement I was trying to wait to sell at a peak. and settlement was approaching so i had to bite the bullet and sell at a price less that I could have a few weeks prior.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    So if I move back into the property and it becomes my principle place of residence and put 800k into the redraw then redraw to buy a new property for $1m (80% LVR). Are you saying none of the interest is deductible against the rent of the new property? The ATO tax guidance appears to outline it will be. How much will be tax deductible?

    Not sure how you get that idea from my posts. If you split the loan and do it properly 100% of the interest could be deductible if the borrowed money is used to buy an income producing property as per s8-1 itaa97

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    probably best to speak to a lawyer as a trust is a legal device, a relationship in equity and only lawyers can give legal advice. Many can also give tax advice.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    If I take the 800k and put in the redraw then take it out to buy a new property, will the full 800k be deductible?

     

    =

    No

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    @terryw
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    It could be anything depending on the circumstances. It will depend on a lot of thing – ability to claim the main residence exemption, land tax, intention with the front property, stamp duty laws, asset protection, estate planning etc etc

    Once you determine which legal owner then you have to work out how to structure the structure. If it a company acting as trustee of a discretionary trust, then how to you fund the deposit, how about the remainder, who should be shareholder, director, terms of the trust, should the trustee be excluded as a beneficiary, should there be different capital and income beneficiaires, should default beneficiaries be included, if so what about the asset protecton issues etc

    You need specific legal and tax advice.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    Actually you are probably best to work out hte portions of the mixed loan now, then split, and then do the above as this might help you claim the interest on the $200k if you were to rent the current property out.

     

    Seel specific tax advice

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    The loan relates to 2 or more uses.

     

    Your loan is current $1mil right?

    Part of this relates to the purchase of the current property and part relates to not much, you borrowed and put in an offset mixing with cash.

     

    If you put $800k into a $1mil loan the balance will be $200k, but this balance partially relates to the purchase of the property and partially to the mixing in an offset account.

    It will be mixed furhter if you pull $800k out to invest. You could only claim part of the interest.

    But if you split the loan and paid $800k into an $800k split and redrew to invest the interest could be deductible in full, if you do it right, as there would be no mixing then. 100% of it was used for the 1 investment.

     

    It is not really relevant if you move back in or not.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    I don’t know anything about the UK

    There is no GST difference between ownership entities – in this situation, but there are a lot of other tax and non tax differences.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of TerrywTerryw
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    You now have a mixed loan, so a few issues there.

     

    If you pay the loan down by $800k it will be mixing it furhter so you should split it. Pay $800k into a $800k split and redraw it and invest it. If the investment is expected to produce income, such as rent, the interest on this split would generally be deductible.

     

    Deductibility is determined by the use of the money borrowed, not the security. So if you borrow another $640k and invest it the income will be deductible. THe main criterisa is  that it needs to generate income.

     

    Seek specific tax advice.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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